Terry Murden: Customer loyalty | Wonga scandal

George Osborne visited a Lidl store on the same day as the Tesco AGM. Picture: Rex

TERRY MURDEN

TWO of Britain’s corporate giants held annual shareholder meetings last week and shared some common current issues, not least their fading grandeur, writes Terry Murden

Royal Bank of Scotland and Tesco were once symbols of what made Britain great. Both held such dominant positions in their respective sectors it seemed inconceivable that any rival, however ambitious, could ever topple them.

They were the proverbial darlings of the City, must-haves in the share portfolio and as rock solid in their growth plans and reputations as the granite that built Aberdeen.

Last week’s annual general meetings for both companies served as lessons in what can go wrong and how easy and quickly it is to lose what has been long in the making.

It’s not that we needed reminding of the collapse and ongoing problems at RBS, but along with its one-time banking partner Tesco its shareholders remain restless for improvement and a restoration of what caused them to invest in the business in the first place.

To be clear, Tesco’s “problems” are far different to those of RBS. It remains the most popular supermarket chain in Britain and its balance sheet is robust. But in the land of the giants, slippage of any kind is a mark of failure, rather like a run of bad results for Celtic or Manchester United. Tesco’s “failures” have been easy to spot: an over-confident advance into the US which had to be reversed; criticism of its pricing policies in the UK; and questions about chief executive Philip Clarke’s strategy of building a “family of brands”.

To continue the football analogy, Tesco is still vying for a Champions League place, but it can no longer give its supporters a guarantee that it will get one. What looked like a deliberately timed and crunching tackle came from German discounter Lidl. As Tesco shareholders gathered at the Queen Elizabeth II Conference Centre in London, Lidl unveiled plans to create 2,500 jobs. Chancellor George Osborne just so happened to be visiting one of its stores and was photographed with the company’s UK managing director Ronny Gottschlich at 11am on Friday – just as Tesco chairman Sir Richard Broadbent was getting to his feet. It was a cruel reminder of how Lidl and its compatriot Aldi have been kicking lumps out of the big four. No wonder shareholders were frustrated, one telling Clarke he was “not Madonna” and it was not his job to be loved but to get on with running a general store. Ouch. At least Clarke has agreed to forfeit his bonus, something his predecessors would have considered unthinkable.

Two days earlier, RBS bosses lined up to face another mauling, though the meeting proved to be a timid affair. Maybe shareholders have just become weary of fighting the same battles and have lowered their expectations. No-one could even be bothered to ask about the board’s view on Scottish independence.

Common to both companies is management misjudgment. Others call it incompetence, and some would go further still. What we do know is that recent events prove that one-time giants cannot take their dominance and the loyalty of customers for granted. As we have also learned over the past week, such assumptions can come back and bite you.

Wonga scandal leaves regulators looking lax

THE fake letters scandal surrounding payday lender Wonga is proving almost as big a test for the regulators as for the company itself.

The City of London Police confirmed that discussions took place with the Office of Fair Trading (OFT) in March last year to consider whether the matter should be further explored by fraud investigators. It was decided to let the OFT continue its own investigation in the interests of allowing those customers affected to receive compensation.

Now a settlement has been agreed, the police have resumed their interest in the case. But what does it tell us about the regulators’ performance?

Following the mistakes made by those, including the Financial Services Authority, that were supposed to have supervised the banks, a new regulatory regime was ushered in last year with more powers and promising to be tougher on the causes of financial misdeeds. But the new Financial Conduct Authority’s (FCA) regulatory control over consumer credit only came into force in April this year when it assumed these powers from the OFT.

It was this handover that allowed Wonga to avoid a fine for sending the fake letters from invented lawyers to customers in arrears. Somebody seems to have forgotten to apply retrospective powers to the FCA, and as the offences took place on the OFT’s watch its hands were tied.

This is not the first wobble for the FCA. On the day it took on its extra powers in April someone leaked its planned investigation into millions of insurance policies dating back to 1970. This prompted questions, not least from Treasury select committee chairman Andrew Tyrie, about its fitness to oversee the sector. He accused it of creating a disorderly market as £7 billion was wiped off insurance company shares.

The incident undermined the promises of an improved system. The Wonga case has merely added to that concern.

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